Q1 2022 Electromed Inc Earnings Call
Please stand by.
Greetings and welcome to electromagnet, except first quarter to school 20 twenty-two financial results conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow with a formal presentation.
If anyone should require operator assistance during the conference. Please press Star then zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Kelly all of the equity group.
Thank you Melinda and good afternoon, everyone electorates first quarter of fiscal 20 twenty-two financial results were released today after the market close.
A copy of the earnings release can be found in the Investor Relations section of the company's website at smart vast dot com.
As a reminder, some of the statements that management will make on this call are considered forward looking statements.
These statements about the company's future operating and financial results and plants.
Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those projected.
Any such statements represent management's expectations as of today's date.
You should not place undue reliance on these forward looking statements and the company does not undertake any obligation to update or revised forward looking statements, whether as a result of new information.
Future events or otherwise.
Please refer to the companies S E C filings for further guidance on this matter.
Joining us from electrified this afternoon, or Kathleen Skirvin, President and Chief Executive Officer, and Mike Mccart, Chief Financial Officer Kathy.
Kathleen will begin with some opening remarks, after which Mike will present, a summary of the company's financial results.
Then we will open the call for questions.
Now, it's my pleasure to turn the call over to Kathleen.
Thank you Kelli good afternoon, everyone and thank you for joining us today.
Fiscal 2022 on a strong note with records quarterly revenue at $10 million, a corresponding to twenty-five percent growth versus the first quarter of fiscal 2021, we achieved exceptional year over year growth and both are homecare and institutional businesses.
Just driven by strong execution, and we believe an early indication that our strategic investments in our growth initiatives is paying off.
Our homecare revenue grew 24.4% year over year, two $9.3 million driven by higher referrals and approvals his quarters increase in referrals reflects the expansion of our direct sales force as well as enhanced sales productivity.
Our total field sales employees increased to 51 at the end of the first quarter compared to 42 at the end of the prior year comparable period.
During the same timeframe direct heel sales and placement to 41 from 35, a year ago of note. We expanded our sales force without sacrificing productivity in the fiscal year 2022 first quarter are annualized homecare revenue per direct sales representative was approximately 900.
$55000, a new company record and comfortably above are targeted range of 750000 to $850000. We applaud our sales team for successfully executing a hybrid virtual and face to face selling model.
Wrapped into the App and flow of clinic access during the COVID-19, pandemic and delivering excellent results. Despite the dampening impact of the Delta variant on patient visits to Pulmonologist in accord.
Alright, institutional revenue grew 61.5% to 400.
$49000 in the first quarter of fiscal 20, twenty-two, reflecting both increased capital purchases and higher disposable volume as many hospitals resumed greater utilization of high frequency czeslaw installation or HFC WL protocols. After pausing during the early phases at the pandemic.
I shall I start to the fiscal year gives us confidence to continue our strategy of investing in growth of electric <unk> Smart best HFC W. O business, while maintaining near term profitability and building scalable and efficient processes that will enhance operating leverage over the long term.
Related to Salesforce expansion, we are confident in our plan to staff 43 territories in the near term and although not at that staff level at the end of quarter. We are selling in all 43 territories leveraging our sales support staff as we recruit higher and onward toward that claim.
Strengthened recruiting Onboarding training accountability measures target account planning and coaching I'll have contributed to stronger salesforce productivity and our overall homecare revenue increases.
Given this backdrop, we are confident that expanding our sales force will drive Sally.
Typically it takes a new sales rep six months to reach full productivity and establish territory and nine to 18 months and expansion territories.
Aced on our historical productivity actual performance, we are revising our productivity range can between 800000 and $900000 of homecare revenue per sales rep from our previous range of 750000 to $850000.
In fiscal 2022, we will continue to deploy funds into direct to consumer and digital marketing programs, which are providing us with a new stream of high quality leads referrals and revenue we.
We are continuing to invest in elevated amount in research and development. This year to finalize our next generation device.
Which is designed to further advance the attributes of our existing SQL smartvest device, while providing us with raw materials cost advantages.
We anticipate the launch of our next generation device in the first half of fiscal year 2023, but.
By which point are R&D expenses should return to normalised levels in the range of 2% to 3% of sales.
In fiscal 2022, we are continuing to invest in clinical studies, including the previously disclosed prospective multi center bronchiectasis outcome study utilizing our best.
That study is now approximately 30% enrolled after a several months caused due to the pandemic.
We also are enrolling a post surveillance study with chronic obstructive pulmonary disease and bronchiectasis patients prescribing smartvest utilizing quality of life questionnaires to measure outcomes prior to therapy and at two intervals. Following initiation under therapy, we expect to complete the enrollment through the two integral follow up in a second.
Half of fiscal 2022.
We believe we are the industry leader and advancing clinical studies.
Providing electric med with further differentiation during the sales process and increasing physician awareness of using smartvest for the effective treatment of bronchiectasis.
Finally, this year, we are continuing to make critical infrastructure investments designed to drive operational excellence and growth among.
Among our systems projects in July we commenced implementation of a new ERP software platform designed to create more efficient and scalable operational processes, while enhancing the quality of business analysis.
This quarter, we also deploy resources to enhance our existing customer relationship management system and optimization of our revenue cycle management system.
In closing the growth oriented investments, we're making today reflect our confidence and electric <unk> ability to capture incremental share of the significant expanding non cystic fibrosis bronchiectasis market. We believe that approximately 630000 people with a bronchiectasis diagnosis could benefit from HFC W. A therapy.
It only an estimated 77000 patients in the Medicare population you are currently being treated with a device, but smart best.
Therapy with smart best Improvs patient quality of life prevents emergency room visits and intensive care stays and reduces the need for antibiotics all positive outcomes underpinning our mission of making life's important moments possible one breath at a time.
By investing in our mission, we believe we will and Ken Endhand Electric <unk> long term revenue growth rate ultimately driving operating leverage improved margin and durable shareholder value creation with that I will turn it over to Mike for more detailed discussion other financial results.
Thank you Kathleen and good afternoon, everyone.
Our net revenue in the first quarter of fiscal 2022 increased 25% to $10 million from $8 million in the first quarter of fiscal 2021, primarily driven primarily by higher homecare and institutional revenue.
Okay revenue increased $24, 4% to $9 $3 million, primarily due to an increase in referrals and approvals.
As Kathleen noted we benefited from an increase in direct sales representative and an increase in overall sales representative productivity.
Institutional revenue increased 61.5% to $449000 due to an increase in volume of devices and Garmin sold as hospital return to more normal purchasing activity.
Distributor revenue totaled $156000 in the first quarter of fiscal 2022 first of $178000 in the comparable prior year period.
International revenue totaled approximately $112000 during the first quarter of fiscal 2022 for $252000 in the comparable prior year period.
Gross profit in the first quarter of fiscal 2022 increased to seven $7 million or 77% of net revenue from $6 $1 million or 76, 8% of net revenue in the first quarter of fiscal 2021.
The increase in gross profit dollars. This quarter was primarily due to stronger home-care revenue.
The increase in gross profit percentage. This quarter was primarily due to favourable revenue mix, partially offset by increased raw material and shipping costs.
During the quarter, we did experience progressively increasing raw material and shipping costs, which we expect to continue through fiscal year 2022.
These coffee increases will place downward pressure on our gross margin percentage.
We expect our gross margin percentage to be in the mid 70% range for the remainder of fiscal year 2022, which is on the low end of our historical gross margin percent range.
We do expect an increase in gross profit percentage once our next generation devices fully launched in fiscal year 2023, due to a lower product cost structure compared to our current device.
Selling general and administrative expenses increased to $6 $8 million in the first quarter of fiscal 2022 from $5 million in the prior year period, primarily due to increased payroll and compensation related expenses hire professional fees and greater travel meals and entertainment expenses.
Higher payroll and compensation related expenses were primarily due to a large larger average number of employees and sales and marketing rolls.
Increased commission on higher Home-care revenue.
Based increases and higher health insurance costs.
Hire professional fees were primarily due to increased costs related to the shareholder activism matter, which included with the cooperation agreement that became effective in September of 2021.
And increased investment in our system's infrastructure, including initiating our ERP system implementation and enhancing our existing customer relationship management and revenue cycle management systems.
Higher travel meals and entertainment expenses were primarily due to an increase in travel by sales representatives compared to the heavily COVID-19, driven travel restrictions in the prior year period.
International sales meeting that was held in the current fiscal quarter, but was not held in the prior year due to COVID-19.
As a percentage of revenue SG&A expenses were 67, 9% compared to 62.5% in the first quarter of fiscal 2021.
Research and development expenses totaled $376000 in the first quarter of fiscal 2022, or three 8% of revenue compared to $481000 or 6.0% of revenue in the comparable prior year period.
Kathleen mentioned, we continue to invest in our next generation device this quarter and expect to watch the product in the first half half of fiscal year 2023, following five 10-K clearance by the us food and drug administration.
Operating income totaled $538000 compared to $663000 thousand dollars in the first quarter of fiscal 2021.
Reflecting our increased strategic investments in SG&A and costs related to the shareholder activism matter, partially offset by stronger revenue performance.
Income tax expense totaled $108000 this quarter compared to $137000 in the same period of the prior year.
We expect our effective tax rate for the fiscal year to be in line with recent historical tax rates.
Net income for the first quarter of fiscal 2022 was $439000 or five cents per diluted share compared to $535000 or six cents per diluted share in the first quarter of fiscal 2021.
Now move into the balance sheet in operating cash flow.
Our balance sheet as of September 30th 2021 included cache of $11.0 million accounts receivable of $18.4 million no that working capital of 27 $6 million and shareholders' equity of $33 million net.
Net cash used in operating activities totaled $576000 in the quarter vs. Net caf provided by operating activities of $822000 in the comparable prior year period.
Operating cash flow is impacted this quarter by an increase in ER related to our $24, 4% home-care revenue growth and higher quarterly cash and income tax payment timing, which were due in part to catch up on tax payments, Oh due to higher profitability than expected and the prior fiscal year.
Finally key priorities for allocation of our capital include continued reinvestment electrodes market expansion technology differentiation and Salesforce footprint and continued repurchase of Electromed shares on an opportunistic basis.
This concludes our prepared remarks, operator, please start the Q&A portion of the call.
Thank you the floor is now open for questions. If you do have a question. Please press Star then one on your telephone keypad to join the queue, if you're using a speaker phone. Please pick up your handset to provide the best sound quality.
Again, ladies and gentlemen, if you didn't have a question or comment. Please press Star then one on your telephone keypad at this time.
And we go first to tile Bowser as call. Your security. Please go ahead.
Hi, Thanks for taking my question and this is Kayla hostettler on for Kyle.
Hi.
Kayla sounds like hi.
Let's see.
Sounds like the next 10 device had large sometime between July and December of next year could you talk about the milestones needed to complete beforehand or are you still finalizing the new concise and you need to collect data to connect with your application.
Sure I'd be happy to answer that question Kayla. Thank you.
So some of the significant milestones are part of our face gate design process and so we're continuing to move through those phase gate.
And in the latter stage of those where we would be doing certain risk management documentation, there would be certain testing that needs to be due from Ah.
Do from a performance standpoint.
Could be electro.
Magnetic testing UL testing and so forth and then of course, just finalising. The writing of the five 10-K. So those are a few we're not anticipating any any concerns at this time and therefore still believe we're on track for that that launch in that first half of our fiscal 2020.
Three.
Okay, and then are there any clinical milestones your date or re out so we should be watching for.
For the launch of the new product.
Mhm.
Not that I can think of right now that come to mind.
Okay, Great and then what's on your shoulder needing is on Friday real creative Cranston strategy Committee, which is great what sort of timeline, even imagine here in terms of my Michelle that commendations from the committee.
Sure you are absolutely right.
At the conclusion of the shareholder meeting in the board meeting, which is taking place that same day, we will have authorization to launch show or start that finance and strategy Committee and they will have an improved charter also I believe that they will.
Convene their committee within the month to start on their review and analysis assessment and discussions around.
With the with the goal of enhancing shareholder value.
And then lastly can you provide a little more color around to take investments, we're making a respected system infrastructure just curious what all ended up stuck it stinks.
On the on the infrastructure absolutely, Mike maybe you want to talk a little bit about infrastructure, yeah sure. Yeah. I mean, I think there's three major ones I think the ERP is of course, the big one that's holistic across the whole organization and we kicked off in July of this year will just really help us build scaleable efficient processes and get a lot.
Better analytics for our business with far less work. So we're excited to get going on that and then we fully implemented our revenue cycle management system in June of last year. There was always in my experience a six to nine months cycle. After you go library really optimize it and figure out how to get the right analytics and performance metrics out of it and.
So we're continuing to invest in that to make sure that we're getting all the benefit that we want out of our revenue cycle management system.
And then the third piece of our customer relationship management system, We've got a good CRM in place and we're doing some good things.
In there as well, but it's really that those are tools that help our sales team. They have their own dashboard that helps them really be very targeted in their approach and very analytical in terms of how they go and target accounts to help drive growth and we've got a pretty good CRM novel, we're trying to take that to a different level of some with some incremental investments in there. So it really pushing hard on all three of those here.
During fiscal year 2002.
Great. Thank spelled the updates to ultimate back in queue.
Thanks camera.
Next we go to the line is James Terwilliger West Northland Securities. Please go ahead.
Hey, guys can you hear me okay.
Yes, we can.
Okay, Great gels.
Hello, I hope everyone's well great job on the revenue number that's a very nice number that you posted a couple of quick questions.
Questions. The first one you made a sudden I was gonna ask us anyway, but you actually adjusted ahead of time can you expand a little bit on anything that's going on with the supply chain, we hear that from a number of different companies and I think you mentioned there was a little bit of a supply chain.
Issues or cost moving in a certain direction, but.
<unk> I think you'll also set about 75% gross margins, which is a little bit less than what you guys have been trending but not terrible could could do I have that correct 75 per cent gross margins and and any other additional information on maybe what you are saying from the supply chain.
Yeah, I'll take the gross margin I'll, let Kathleen Tacos question, Yes, I mean, we would say mid mid seventies is probably the range of variance around 75, but probably in that in a little bit lower than what our historical 70, 670 778 has been a fair assessment, yeah, absolutely and and let me share a little bit more about the supply chain or materials and engineering group.
Has been incredibly proactive on working with our suppliers anticipating longer lead times, placing purchase orders will in advance.
Even that even with that though we can be surprised by a phone call that says what we plan to deliver isn't available and I think our suppliers that are feeling that as well that there are disruptions in interruptions that aren't fully predictable we have been fortunate though in the work that we've been doing we have not seen any material impact from.
From a manufacturing or shipping standpoint, and we are cautiously optimistic that we can continue but I will say that most everyone is experiencing this situation where it isn't always as predictable as as we would like it to be so again, we're we're continuing to.
Placed purchase orders well in advance we're continuing to say very close with our suppliers.
And will continue to do that but there are cost increases on our raw materials that are not predictable as well and so we do want to be.
Somewhat.
Careful and giving that guidance on gross gross profit and then there are shipping costs that have been impacted too as you probably know if you've tried to ship something for Christmas or a box that's really incredibly.
Incredibly increase which of course is a lot out of our control also.
So hopefully that some helpful color.
No the supply chain has been an issue for a number of different companies and and you have got to navigate up it seems like you're navigating it very well. My next question kind of thing is probably for you since I have you.
We go into calendar, 20th 22 are there any reimbursement changes on the horizon that we should be looking at or or discussing.
Discussing models.
Person to choose between 22.
So there's two two items that come to mind, one will be receiving cost of living changes from Medicare here in another month or so before the first of the year as Mike has commented on historically, we've received some type of a small increase based on cost of living and I've heard of other.
Cost of living in 12, Medicare changed their monthly benefit as well so.
Sure.
We'll see we'll let you know that that that becomes public at that time.
We're continuing to watch the CMS waiver that is linked with the public health emergency and at this time that is continuing through almost the end of January.
I don't.
I think that we are still optimistic that has benefits and we've also talked to that if the pandemic is improving to the point, where the public health emergency is no longer in in fact than we would like to think that we're going to have more access to clinics and there's more patients that are going to be much more.
Comfortable going back into the clinic, so really that's the headwind tailwind that we talk about occasionally but other than that we're not anticipating any changes at this time.
Alright, Great and then my last one I think you've kind of touched upon a lot of companies have.
I have a tough time with with what happened with Covid and Delta in Texas doing procedures referral patterns also Florida, certainly the southeast.
The Delta very pretty bad.
What was your exposure to the southeast has had a major region for you did the Texas and Florida impacts.
Hit you because you're revenue number was really really it was really strong number so any additional keller there had.
It had to be a negative of course, but but can you quantify that at all.
I certainly there were impacts in regard to the.
Volume of patients that were visiting their clinics.
I think though that there were so many ebbs and flows and it's very on which part of the United States was experiencing those increases in cases and settled based on our our.
Where our sales reps are and where they were able to access we were able to overcome that and the team has just been extremely flexible on that virtual and.
Being creative about access so that we can continue to help patients. So.
Nope nothing different than that at this point that that I can.
Sure I think again, it's a tribute to our sales organization.
<unk> Ben.
Okay, great I'll jump back into but congratulations on a good quarter. Thanks.
Thank you James.
Next we go to the lineup Tom Harrisonburg with Carl M. Henning. Please go ahead.
Yes. Good afternoon can you give us an update on the share repurchase I believe you bought 110000 shares in the prior quarter.
And I think that's on a 3 million share repurchase program.
Yeah. Thank you and thanks for the question Tom.
<unk> said as we said in our script and we've said previously we're going to be opportunistic about repurchasing and we did not have any additional repurchases in this quarter.
Okay. Thank you.
You're welcome.
There are no further questions Sweet returned to Kathleen scarred fan for closing remarks.
Thank you all for joining our call. This afternoon in December will be participating in the Sidoti Microcap Investor Conference, which will be held virtually and we remain accessible to one on one called please reach out to our Investor relations firm. The equity group. If you are interested in scheduling a follow up call. We look forward to reporting back to.
In February when we will release, our second quarter of fiscal 2022 financial results have a good evening and stay safe.
Thank you. This does conclude today's teleconference. We thank you for your participation you may disconnect your lines at this time.
[music].